The National Economy in a Global Context · 7135/2

AQA AS Paper 2, June 2018

All 12 written questions and 20 multiple choice questions from AQA AS Paper 2 (June 2018), The National Economy in a Global Context. Case studies: Economic shocks and the UK economy and A new approach to government policy. Each question shows its marks and topic, with an examiner insight on 4, and opens the question paper and mark scheme at the right page.

Question paperMark schemeInsert

Context 1

Economic shocks and the UK economy

Extracts: Sterling exchange rate, US$ per £, 1 May 2016 to · Tales of the unexpected · So what happens next?

Q24Draw4 marks
Extract C (lines 7–9) states ‘During late 2016 the Government gave the go-ahead to the construction of the third runway at Heathrow airport in London.’
Draw an AD/AS diagram to show both the short-run and long-run effects ‘on macroeconomic equilibrium’ of investment in a large infrastructure project such as this.

TopicFiscal policy and supply-side policiesSupply-side policiesAggregate demandAggregate supply

Question paper p.15Mark scheme p.9Insert p.1Open in the toolDraw it: AD/AS diagram
Q25Explain10 marks
Extract B (lines 9–11) states ‘The Bank of England’s Monetary Policy Committee loosened its monetary policy in an attempt to prevent a downturn in the economic cycle.’
Explain how monetary policy might help to prevent a downturn in the economic cycle.

TopicFinancial markets and monetary policyMonetary policy & interest rates

Examiner insight

What to cover
Lower interest rates and QE raise borrowing and spending, so AD rises and a downturn is less likely.
Diagram
AD/AS diagram.
Watch out
Explain the transmission mechanism.
Question paper p.16Mark scheme p.11Insert p.1Open in the toolPractise the AD/AS diagramPractise the economic cycle diagram
Q26Assess25 marks
Extract C (lines 5–6) states ‘Some economists believe that a reduction in the level of economic activity and an increase in unemployment are inevitable.’
Use the extracts and your knowledge of economics to assess the view that when an economy experiences a negative economic shock there will always be a sustained increase in unemployment.

TopicEconomic performanceUnemployment

Examiner insight

What to cover
A negative shock reduces AD and output, so unemployment rises.
Diagram
AD/AS diagram.
Evaluation
Consider policy responses, the size of the shock and recovery. Judge using the data.
Watch out
Use the extracts.
Question paper p.18Mark scheme p.12Insert p.1Open in the tool

Context 2

A new approach to government policy

Extracts: Northern Powerhouse funding (January 2017) · A more active role for government · Does the new approach go far enough?

Q31Explain10 marks
Extract E (lines 18–19) states ‘the 2017 Budget Report stated the intention to reduce the rate of corporation tax further to 17% by 2020.’
Explain how a reduction in corporation tax on firms’ profits might lead to supply-side improvements in the economy.

TopicFiscal policy and supply-side policiesFiscal policy & public financesSupply-side policies

Examiner insight

What to cover
Lower corporation tax raises post-tax profits, so investment rises and LRAS shifts right.
Diagram
LRAS shifting right.
Watch out
Explain the link to investment.
Question paper p.26Mark scheme p.18Insert p.1Open in the toolPractise the AD/AS diagram
Q32Assess25 marks
Extract E (lines 3–4) states that there is ‘a new approach to government...a new, active role that backs business and ensures more people in all corners of the country share in the benefits of its success’.
Use the extracts and your knowledge of economics to assess the view that a more active government industrial policy will make a significant improvement in macroeconomic performance.

TopicFiscal policy and supply-side policiesSupply-side policiesMacro objectives & conflicts

Examiner insight

What to cover
An active industrial policy can raise investment and growth.
Diagram
LRAS shifting right.
Evaluation
Consider cost, government failure and time lags. Judge using the data.
Watch out
Use the extracts.
Question paper p.28Mark scheme p.19Insert p.1Open in the tool
Q21 mark
The following table shows the planned changes to injections into and withdrawals from the circular flow of income for one year.
£bn Exports Government expenditure Imports Investment Savings Taxation Other things remaining the same, these changes would cause
  1. Aconsumer expenditure to decrease.
  2. Bnational income to increase.
  3. Cthe balance of trade deficit to decrease.
  4. Dthe budget deficit to rise.
Show the answer

The answer is B.

TopicHow the macroeconomy works (AD/AS)Circular flowAggregate demand

Question paper p.3Mark scheme p.3Open in the tool
Q31 mark
A government wants to increase the economy’s rate of long-run economic growth by implementing a supply-side policy. Which one of the following is a government policy aimed at stimulating the supply side of the economy?
  1. AA new scheme to help young people buy their own homes
  2. BGreater provision of care homes for the elderly
  3. CMeasures to promote competition between businesses
  4. DMore generous welfare benefits for unemployed workers
Show the answer

The answer is C.

TopicFiscal policy and supply-side policiesSupply-side policiesEconomic growth & cycle

Question paper p.3Mark scheme p.3Open in the tool
Q41 mark
A government reduces its budget deficit. Other things remaining the same, the most likely short-run impact of this policy is
  1. Aa reduction in the current account deficit.
  2. Ba reduction in unemployment.
  3. Can increase in the rate of economic growth.
  4. Dan increase in the rate of inflation.
Show the answer

The answer is A.

TopicFiscal policy and supply-side policiesFiscal policy & public finances

Question paper p.4Mark scheme p.3Open in the tool
Q51 mark
Europe and North America enter a period of recovery from a recession. Other things remaining the same, the impact on the UK economy is most likely to be
  1. Aan increase in structural unemployment.
  2. Ban increase in the current account deficit.
  3. Ca reduction in cyclical unemployment.
  4. Da reduction in UK economic growth.
Show the answer

The answer is C.

TopicEconomic performanceEconomic growth & cycle

Question paper p.4Mark scheme p.3Open in the tool
Q61 mark
Which one of the following best describes the action of the accelerator theory of investment?
  1. AFirms decide to invest more following a cut in bank rate
  2. BFirms invest in capital equipment due to higher economic growth
  3. CImproved business confidence causes firms to increase their investment
  4. DLarge profits encourage firms to invest in new capital equipment
Show the answer

The answer is B.

TopicHow the macroeconomy works (AD/AS)Aggregate demand

Question paper p.4Mark scheme p.3Open in the tool
Q81 mark
Which one of the following is the best definition of a household’s total saving?
  1. AAn injection into the circular flow of income
  2. BContributions to a pension fund for retirement
  3. CMoney placed in bank and building society accounts
  4. DThat part of disposable income not spent on consumption
Show the answer

The answer is D.

TopicHow the macroeconomy works (AD/AS)Circular flowAggregate demand

Question paper p.5Mark scheme p.3Open in the tool
Q91 mark
Inflationary pressures are normally low when an economy has a negative output gap.
The most likely explanation for this is that
  1. Aconsumers’ spending on imports and the exchange rate rise.
  2. Bthe Bank of England may cut bank rate and increase the money supply.
  3. Cthe government’s tax revenue falls and spending on benefits increases.
  4. Dunemployment is high and firms have excess capacity.
Show the answer

The answer is D.

TopicEconomic performanceEconomic growth & cycleInflation & deflation

Question paper p.6Mark scheme p.3Open in the tool
Q101 mark
In the diagram below, an economy is initially in equilibrium at point G. Aggregate demand then shifts from AD1 to AD2 and the short-run aggregate supply curve shifts from SRAS1 to SRAS2.
Which one of the following combinations of events will cause these shifts in AD and SRAS and move the economy to a new equilibrium at point H?
  1. AA cut in income tax and an increase in VAT
  2. BA fall in money wages and a fall in house prices
  3. CAn increase in productivity and a rise in consumer confidence
  4. DHigher energy prices and lower government expenditure
Show the answer

The answer is B.

TopicHow the macroeconomy works (AD/AS)Aggregate demandAggregate supply

Question paper p.6Mark scheme p.3Open in the toolPractise the AD/AS diagram
Q111 mark
A country has a deficit on the current account of its balance of payments. This means that
  1. Athe country must have a deficit on the balance of trade in goods and services.
  2. Bthe net value of trade in goods and services plus the net value of primary and secondary income must be negative.
  3. Cthe value of all outflows from the country must be less than the value of all inflows.
  4. Dthe value of exports of goods must be less than the value of imports of goods.
Show the answer

The answer is B.

TopicThe international economyBalance of payments

Question paper p.7Mark scheme p.3Open in the tool
Q121 mark
The table below shows the index of real GDP for the UK before and after the 2008–09 financial crisis.
2007 2008 2009 2010 2011 UK index of real GDP 105.2 104.1 100.0 101.8 102.7 2009 = 100 From the data it can be inferred that in the UK
  1. Areal GDP fell by 2.5% between 2007 and 2011.
  2. Bthe annual rate of inflation was minus 1.1% in 2008.
  3. Cthe rate of economic growth was lower in 2011 than in 2010.
  4. Dtotal output of the economy fell by 5.2% between 2007 and 2009.
Show the answer

The answer is C.

TopicMeasuring macroeconomic performanceGDP & national incomeEconomic growth & cycle

Question paper p.7Mark scheme p.3Open in the tool
Q131 mark
A government is planning to reduce its budget deficit by increasing taxes on tobacco and reducing spending on defence.
These policies are most likely to
  1. Achange the pattern of economic activity in the long run.
  2. Bincrease inflation in the long run.
  3. Cincrease the level of economic activity in the short run.
  4. Dreduce exports in the short run.
Show the answer

The answer is A.

TopicFiscal policy and supply-side policiesFiscal policy & public finances

Question paper p.8Mark scheme p.3Open in the tool
Q141 mark
The table below shows four possible sets of circumstances for the UK economy. Which set of circumstances is most likely to cause the Monetary Policy Committee of the Bank of England to raise bank rate?
Output gap Exchange rate
  1. Anegative falling
  2. Bnegative rising
  3. Cpositive falling
  4. Dpositive rising
Show the answer

The answer is C.

TopicFinancial markets and monetary policyMonetary policy & interest rates

Question paper p.8Mark scheme p.3Open in the tool
Q151 mark
An economy that imports most of its energy experiences a large appreciation in its exchange rate. Which one of the following AD/AS diagrams best illustrates the resulting changes to the economy’s price level and real national output?
  1. A(see diagram in paper)
  2. B(see diagram in paper)
  3. C(see diagram in paper)
  4. D(see diagram in paper)
Show the answer

The answer is B.

TopicHow the macroeconomy works (AD/AS)Aggregate supplyExchange rates

Question paper p.9Mark scheme p.3Open in the toolPractise the AD/AS diagram
Q161 mark
A government raises income tax rates for very high wage earners and spends all of the extra revenue raised on higher welfare benefits. The result is a reduction in income inequality and a fall in the rate of economic growth. This is also most likely to
  1. Alead to a reduction in government borrowing and national debt.
  2. Bresult in an improvement in incentives to work.
  3. Cshow a potential conflict between macroeconomic policy objectives.
  4. Dshow the use of a contractionary fiscal policy.
Show the answer

The answer is C.

TopicEconomic performanceMacro objectives & conflictsInequality & poverty

Question paper p.10Mark scheme p.3Open in the tool
Q171 mark
The diagram below shows the annual rate of inflation in the UK between 2011 and 2014.
From the graph it can be concluded that between 2011 and 2014
  1. Areal wages increased.
  2. Bthe price level was rising.
  3. Cthe real value of money increased.
  4. Dthe UK experienced deflation.
Show the answer

The answer is B.

TopicEconomic performanceInflation & deflation

Question paper p.10Mark scheme p.3Open in the tool
Q181 mark
An expansionary monetary policy has been implemented. Which one of the following combinations of macroeconomic changes is most likely to happen?
  1. AA fall in the price of imports and more demand for bank loans
  2. BA rise in consumption and an increase in house prices
  3. CAn increase in employment and a rise in government borrowing
  4. DAn increase in retail sales and a rise in the savings ratio
Show the answer

The answer is B.

TopicFinancial markets and monetary policyMonetary policy & interest rates

Question paper p.11Mark scheme p.3Open in the tool
Q191 mark
The world market price of oil falls by 40 per cent. Other things remaining the same, the impact on the UK economy is most likely to be
  1. Aan increase in aggregate demand and inflation.
  2. Bdeflation and lower output.
  3. Cdisinflation and higher output.
  4. Dhigher unemployment and inflation.
Show the answer

The answer is C.

TopicHow the macroeconomy works (AD/AS)Aggregate supplyInflation & deflation

Question paper p.11Mark scheme p.3Open in the tool

Question text is quoted from the question papers, © AQA, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.